Let’s talk about Basis!

by | Feb 25, 2019 | Blog, Taxes | 0 comments

“Basis” is a loaded word for accountants. It is very much described in the same regards as “time”, in that there never seems to be enough time when it is needed most. For many S-corp shareholders, basis is starting to come into play at tax time and many are unprepared for that complication when they are trying to get their taxes wrapped up.

The IRS is now requiring basis to be included with personal tax return filings, which is adding to the ever growing list of new data they require each year. The day is coming when the IRS will simply be able to send a letter (THEY NEVER CALL FIRST!!!) to Tom Taxpayer asking them (Tom) to provide the details of their basis calculations for their 20XX tax returns. Hopefully, Tom didn’t use Turbotax or a large tax prep chain to “help” him determine his basis; if he did, then he will likely have a hard time extracting that information in a meaningful way.  

To understand basis, the business owner needs to take a deep dive into the US Tax code to figure out what the heck the word “basis” even means. In most cases, the basis is not the cash in the bank, value of the business, or some other tangible number on the financials. Particularly with pass-through entities, like S-corps, there are also complex rules about the different elements that comprise basis, and many of them are not intuitive or reasonable. An accurate basis calculation is very important, however; and having an incorrect basis calculation can be a costly mistake.

If a business had a $75,000 profit and the business owner took out $70,000 during the year in distributions, then that would leave a $5,000 basis to carry into the next year. However, if the business owner took a loan during the year and spent more than was earned, what happens? What about when a large purchase is financed and creates a tax loss? What are the specific rules about real estate basis calculations? Turbo Tax, H&R Block, or any of the other tax prep chains will have a tough time answering those questions; “its complicated” is probably the most accurate answer and the best they can do.

The CPA’s and accountants at Prus CPA have years of experience with basis calculations and can explain how it works for your business in a straightforward way that will help you prepare for the future. Simply tracking basis is not enough for today’s tax code challenges and the first quarter of the year is not the time to get interested in learning about last year’s basis. Get the right information all year long with Prus CPA, contact us now to get a handle on basis.

MORE ARTICLES FROM OUR BLOG

Intuit is raising their prices!

Prus CPA’s arch nemesis, Intuit, is raising prices across the board. That isn’t even the worst part, as Intuit will be offering “live” bookkeeping as an add-on service for their QBO subscribers. That announcement means that Intuit will now be competing directly with a...

Unlocking value in real estate

TL;DR Summary: Only a cost segregation study can unlock the value of your commercial property for a large tax deduction.Real estate has long been held as a way to build wealth and there are many examples out there (good and bad) of those who have made their fortunes...

GMP CPA Business Advisor

GMP CPA recently met with a prospective client and when the topic of being a business advisor came up, we heard an interesting point of view. The potential client was specifically looking for a professional that would offer more than [just] tax & accounting...

Pros and Cons of 401(K) Loans & The Tax Impact of a Child’s Investment Income

Are You Sure You Want To Take That 401(K) Loan? With summer headed toward its inevitable close, you may be tempted to splurge on a pricey “last hurrah” trip. Or perhaps you’d like to buy a brand new convertible to feel the warm breeze in your hair. Whatever the...

Wonder how GP CPA’s “takeout drawer” looks after the end of tax season?

This is what the GP CPA “takeout drawer” looks like after tax season ends... Many thanks to Hanako for being our dedicated supplier of takeout...  MORE ARTICLES FROM OUR BLOG
Tina Simmons
Tina Simmons
13:38 17 May 19
This team is dedicated to their clients and committed to understanding your business and sharing their knowledge to help you succeed. I love working with these folks, they take the worry and uncertainty out of accounting and taxes!read more
Bravo4 Autowerks
Bravo4 Autowerks
12:55 08 May 19
Gary and his team have been fantastic for me and my business. They respond well to all my questions, are very helpful and of course keep my financials in order. Highly recommended.read more
Queen City Newborn Care
Queen City Newborn Care
15:57 02 Apr 19
I was drowning before I met Justin. He totally transformed how I run my small business and has gotten me organized in ways I didn't even know were possible. I am so grateful for his advice and suggestions! This company is worth every penny.read more
Dennis Bloomberg
Dennis Bloomberg
16:01 26 Mar 19
Unfortunately, I found GMP when my mother passed. She had a trust set up and I had no experience with one. I received excellent advice prior to filing taxes, that allow for the transfer of assets with little tax implication. The tax process was simple for me, Justin took over once he had details and cleared up all question from filing our taxes. Thank you for a job well done!read more
Natalie Knight
Natalie Knight
15:35 21 Nov 18
Prusiensky CPA is up to date on technology. They handcraft a platform that works best for your company's accounting services. We really appreciate how hands on and quick their team is when replaying to any type of correspondence. Simply put, they care and want your company to succeed.read more
Ashlyn Lelej
Ashlyn Lelej
14:39 21 Nov 18
I highly recommend Justin at Prusiensky, CPA for all of your accounting and tax needs. I've been a client for over two years, and have been consistently impressed with their dedication to helping my business grow and be financially successful. His advice is invaluable. Thank you!read more
Bobby Nguyen
Bobby Nguyen
22:23 20 Nov 18
My partner and I started our very first small business last year. Justin has been a blessing to us. Being new at all of this, we didn’t understand much of how business taxes work. Justin explained and answer all of questions that we have. He took care of everything for us throughout the year and have made life so much easier for us. I couldn’t have asked for a better CPA. Highly recommended!read more
Next Reviews

CATEGORIES

Home office deduction - walkthrough by GP CPA
Intuit is raising their prices!